What the Gift Tax Rules Mandate

Seems a little crummy, doesn't it? If you choose to give away a large sum of money you already paid taxes on to a single individual, you may have to pay taxes on it again in the form of a gift tax. The lifetime maximum for 2018 is $5.6 million (up from $5.49 in 2017), much higher than the average person will ever give. According to Reuters, there are at least 6 million households with more than $1 million making the gift tax a reality for more people than we might think. As you age and amass assets, you may find yourself considering gift tax rules. If you wait too long to prepare, it may be too late. Here's what you need to know about the gift tax.

Planning Your Estate

It may be true that the gift tax doesn't apply to you, but your entire estate may be worth in excess of $1 million once you reach retirement age or older. Although these maximums will adjust with inflation over time, your home and other high-dollar assets may add up to one day surpass the gift or estate tax maximums. If this happens, you may owe a lot more in taxes than you would have if you planned for the event. Because of that, you should meet with an estate planner to develop strategies that can help to reduce your tax bill once you pass away.

The Bottom Line

If the gift or estate tax rules currently affect you, meet with a tax or estate planner so you're prepared for what could affect you. And keep an eye on tax reform legislation, which may change the gift tax, as well as the estate tax.